The model portfolio of Insiders Plus gains 48% last year; here, editor Jack Adamo reviews two of his portfolio holdings -- both bank stocks being accumulated by Warren Buffett's Berkshire Hathaway.
"U.S. Bancorp (NYSE: USB) reported a slight decrease in Q1 earnings of 62¢ per share versus 63¢ last year; the shares rose 2.8% the next day. Compared to the disastrous results of its peers, this small decline in earnings was a home run.
"That's a testament to the company's savvy managers. USB steered clear of the toxic problems that choked most banks. Only 2.7% of its loans are subprime.
"Warren Buffett's Berkshire-Hathaway continues to buy the stock steadily. Recent SEC filings show that in the fourth quarter of 2007 Berkshire increased its share of the Minneapolis-based bank by 3 million shares to a total of 75 million.
"This represents 4.4% of its shares outstanding, and up tremendously from its stake of 23 million shares just a few years ago. The Wizard of Omaha knows what he likes and why he likes it.
"Meanwhile, Wells Fargo & Company (NYSE: WFC) reported Q1 earnings of 60¢ per share down 9% year-over-year, but up 46% from the December quarter. Like USB, Fargo shares continue to be accumulated at Berkshire Hathaway.
"The stock is a solid long-term buy, with good prospects of steadily raising its 4.2% dividend. It has capital appreciation potential to boot, especially after the housing hangover abates."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
"While U.S. banks have struggled amid the credit and housing crises, Credicorp (NYSE: BAP) has excelled," notes John Reese, who assesses stocks based on the strategies of various well-known and time-tested gurus.
Here, the editor of the Validea newsletter looks at the Peru-based banking firm commerical banker and explains how it "passes the test" for four leading guru strategies: Peter Lynch, Martin Zweig, the Motley Fools, and William O'Neill.
"Credicorp's main subsidiary, Banco de Credito del Peru, actually grew its mortgage business 8.2% in the third quarter of 2007 (the most recent quarter for which data is available) as Peruvians' purchasing power continued to increase.
"My Peter Lynch-based strategy considers Credicorp a 'fast-grower' because of its 42.44% growth rate (based on the average of the three-, four-, and five-year earnings per share figures).
"Lynch famously used the P/E/Growth ratio to identify growth stocks selling on the cheap. By dividing Credicorp's 19.6 P/E ratio by that growth rate, we get a P/E/G of 0.46, which falls into my Lynch-based model's best-case category (below 0.5).
"When I evaluate the underlying fundamentals in the financial sector, I find myself ready to back up the truck," notes Louis Basenese, editor with The Oxford Club. Here he looks at a financial ETF.
"Recently GE shocked the world when it missed earnings expectations by seven cents because of difficulties in its financial services business, the seventh largest in the United States. Then Wachovia posted a worse-than expected $1.1 billion loss.
"Next was Washington Mutual which reported a $1.14 billion quarterly loss, worse than expected. And Merrill Lynch had a quarterly loss of $1.96 billion, also worse than expectations.
"Not to be outdone, the bottom of the line-up, regional banks (Comerica Inc., KeyCorp and PNC Financial Services Group) also struck out, reporting worse than expected first-quarter net income and/or mounting credit-loss provisions and net charge-offs.
"Remarkably, the Financial Select Sector SPDR (ASE: XLF) has barely budged. Indeed, its 15% higher than where it was when Bear Stearns collapsed.
"Almost untouched by the subprime scandal and the subsequent credit fallout, Canada's banks are strong and their risk of writeoffs are consider by most analysts as minor," notes Genia Turanova and Gregory Dorsey in Leeb's Income Performance Letter.
"Toronto-Dominion and its subsidiaries, collectively known as TD Bank Financial Group, serve more than 14 million customers. The group offers a full range of financial products and services including wholesale banking securities, personal and business banking, wealth management and U.S. personal and commercial banking.
"TD Bank is looking to expand its US presence by acquiring New Jersey-based Commerce Bancorp. After the acquisition is completed, TD's US banking operations will double. As for the hot topic of all financials these days – its subprime exposure – Commerce Bancorp's $16 billion loan portfolio has no subprime exposure.
"The indiscriminate sell-off in the financial sector has left some banks at valuations that haven't been seen in 20 years," says value investor Nathan Slaughter.
In his Half-Priced Stocks newsletter, the advisors looks to one out-of-favor favorite among banks: Minneapolis-based U.S. Bancorp (NYSE: USB). Incidentally, he notes that Warren Buffett recently added to his position in the banking stock.
"US Bancorp is the nation's sixth-largest bank in terms of assets, with nearly $238 billion at last count. The firm operates over 2,500 branches in 24 states, mostly in the western and midwestern parts of the country, including an established presence in key markets such as St. Louis, Denver and Seattle.
"Over the past year, the company has seen solid increases in both loans and deposits. More importantly, it paid out just 3.8% on those interest-bearing liabilities, far below what it earned on loans and other investments -- with the net interest margin expanding to 3.91%.
"And, that rate could move even higher in the coming months thanks to a more favorable interest rate environment. And as for credit quality, U.S. Bank remains at the very top of its peer group.
"Longer term, history suggests that Citigroup (NYSE: C) will be one of the best turnaround plays out there -- if we have the intestinal fortitude to stick it out," says Keith Fitz-Gerald in The Money Map Reporter.
"Based on Travelers alone, Citi's breakup value is roughly 30% higher than where it is trading today. Other business lines suggest even more money on the table.
"That is why we want to be net buyers at these levels just like some of the smartest money on the planet, including companies like PIMCO and even investors such as Wilber Ross who are legendary for buying on the cheap.
"That doesn't mean there won't be more down days to come or that we won't hate every day we own Citi, but the financial sector is essential to the economy and being able to buy in for 25 cents on the dollar makes sense for any savvy investor looking to the longer term.
According to the article: "I would not be averse to a Fed-assisted transaction," Stumpf said, adding that any deal would have to meet the company's traditional acquisition targets and benefit the bank's acquired customers. Wells has built a reputation as a disciplined buyer over the years, focusing on deals that generate at least a 15% internal rate of return and contribute to the bottom line within three years.
"Fixer-uppers don't bother us," he added.
Who wouldn't want to be part of a deal like this? It's become pretty obvious that JP Morgan Chase got an amazing deal to buy Bear Stearns, and now Wells Fargo wants to join the party.
"I still think this rally has further to run, particularly for financial stocks that will thrive in a lower interest-rate environment," says Mark Skousen in The Hedge Fund Trader Alert. "A prime example is Wachovia (NYSE: WB)."
"Based in Charlotte, N.C., Wachovia is one of the nation's leading money center banks. It offers personal banking, insurance, retail brokerage services, and asset management. The bank has more than 13 million customers and assets that top $754 billion.
"Like most banks, Wachovia's profit outlook has been damaged by the credit crunch. Its mortgage business is in the tank. And the true value of the subprime mortgages on its books has taken a haircut.
"As a result, Wachovia's shares have lost a third of their value since mid-April. This is true even though operating margins are 34% and the dividend yield is now a mouthwatering 6.7%.
"There will be more fallout in the banking sector, but Wachovia already is a terrific value. At current levels, it sells for book value and just nine times prospective earnings.
"The company's top executives also find this stock attractive. Insiders have purchased nearly a million shares during the last six months. They have sold precisely none. Clearly, they believe the stock is oversold at current levels.
"If the stock does nothing more than return to its April high, we'll see a 50% gain from here -- plus dividends. Not a bad return for such a conservative choice."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
"Over the last couple of months it has seemed like the only investors willing to put money into U.S. and European financial companies were big Asian and Middle Eastern institutions, many of them government sponsored," observes George Putnam.
"Should you follow in their footsteps?" asks the editor of The Turnaround Letter. Here is his review.
"There may be good reason to do so. These foreign institutions are staffed by smart people who do their homework, have long time horizons and they like companies with strong brands or market positions." Here, he looks at fivefiancal frms that have received cash infusions from sovereign funds.
"Some of these investors have scored big wins in the past. For example, Prince Alaweed bin Talal of the Saudi royal family bailed out Citigroup once before. He injected new equity into the bank in late 1990 during the last real estate related financial crisis. He bought close to the absolute bottom, and even today his Citi stock is worth many times what he paid for it.
He adds, "I believe stocks have fallen enough to be attractive to all investors except those with very short horizons. And my recommendation for Citigroup (NYSE: C) conveys my conviction that some of the best opportunities for long-term gains will come from the oversold financial sector."
"There is much debate about whether or not a recession is coming. In my view, it has already arrived. But whether or not it's an 'official' recession is largely irrelevant. The Federal Reserve is obviously so alarmed it has slashed interest rates at a record-breaking pace
"With more than 300,000 employees serving 200 million accounts in over 100 countries, Citigroup is a financial services supermarket. But the collapse of the subprime mortgage market erased about $125 billion from the company's market capitalization.
"Many financial institutions got burned by the subprime mortgage meltdown. Banks holding mortgage backed securities (MBS) and collateralized debt obligations (CDO) were particularly hard hit. Citigroup suffered massive writedowns.
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My favorite conservative stock for 2008 is Mastercard (NYSE: MA)," says Ken Kam, who first added the stock to the 'Best Ideas' portfolio of his Marketscope newsletter in June.
"With the financial sector getting killed as the credit crisis expands, investors are scrambling for quality and safety in financials -- the largest sector of the S&P 500. Mastercard fits the bill because of the reasons we liked it in the first place -- no credit.
"Until recently, most investors thought of Mastercard as a credit card company. Its comparables were American Express, Capital One, and Discover -- all credit card companies that HOLD credit card risk on their balance sheets. Mastercard does not.
"Mastercard processes the transactions and charges an interchange fee. The credit crunch spiraling its way through the market is affecting consumers. Access to credit has dried up so it is difficult, if not impossible, to get new mortgages or home equity loans.
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"While many investors are running in fear of the current climate, it actually offers smart investors a great chance to accelerate their profits. There is nothing like a hearty dose of fear to trigger a bout of bargain-hunting! And if you know where to look, there are plenty of bargains.
"You can even make money against all the odds and despite what Wall Street and the media want you to believe. History has proved this. While the masses ran for cover, smart investors stepped in and made serious money.
"And one of the best areas to do this is the financial sector. It's top of the bearish hit list right now, but it's actually packed with profit potential over the next 12 months. Top of our list is Wachovia.
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My more conservative idea for 2008 is MasterCard (NYSE: MA)," says relative strength expert Dan Sullivan in The Chartist. "The card for 'everything else' is the credit card of choice for millions of Americans. MasterCard offers credit payment solutions, processes payment transactions, and also provides consulting services to customers and merchants.
"Despite a sluggish housing market, people are still spending, and for MasterCard, that's great news. The credit giant announced that its third quarter earnings leapt 63%, helped by rising spending volume and the sale of part of its stake in a Brazilian credit and debit card network.
"Third quarter earnings were $314 million, or $2.31 per share, compared with $193 million, or $1.42 a share in the year-ago period. Third quarter results included a $70 million gain from the sale of a stake in Redecard S.A. Revenue rose 20.1% to $1.08 billion.
"MasterCard is owned in the Chartist Aggressive Account and recently broke out into record-high territory. This stock has a highly bullish chart pattern and continues to exhibit tremendous relative strength. We think this stock could be a big winner in 2008."
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My favorite conservative choice for 2008 is Merrill Lynch (NYSE: MER)," says Yola Edwards, editor of the technically oriented Yola Edward's Charts.
"The jobs market is holding up very well and the risk of recession in the United States appears unlikely given the Federal Reserve's accommodating monetary policy to stave off recessionary threats and contain the subprime fallout.
"Merrill Lynch suggests that year-end 2008 will be marked by a 2.50% Fed funds rate with further easing to 2% by the first half of 2009.
"Among those hardest hit in the subprime credit crisis was Merrill Lynch & Company, which plunged almost 50% from its January highs of $94 in what appears to be a fourth wave correction. Technically, the recent November weekly lows at $50.50 formed a tweezers bottom and offered the stock support from which it has rallied.
"At a minimum we could expect a 38.2 % rally from the lows suggesting a possible upside target to about $67.50 over the next month. However, over the next year we can anticipate the stock to rally 61.8%, from its recent low, to about $77.38 as it bases and works through the corrective phase."
For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"Washington Mutual has been absolutely clobbered by the subprime meltdown. For investors who believe in buying when there is blood in the streets, this looks like a great, if aggressive, opportunity.
"This Seattle-based savings and loan has been in business for more than a century. It has a market cap of $16.7 billion and is a member of the S&P 500. It has cash reserves of $18 billion ($20.89 per share), so it appears to be in good financial shape.
"Despite this, WM's stock price has tumbled 60% over the past 12 months, with most of the decline taking place since the first of October. At current levels, the stock is trading below its most recently stated book value, so the company could be a takeover target.
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